Intel’s x86 Servers Will Dominate But ARM’s Entry Will Take Share

In addition to the PC microprocessor market, Intel (NASDAQ:INTC) is also the leading player in the server microprocessor space. Servers manage large amounts of data, direct data traffic, perform complex transactions, and control central functions in local and wide area networks, and on the Internet. With the rapid growth in online data processing, the server market is a fast growing division. Intel sells its processors directly to server manufacturers such as IBM, Dell, HP, etc.

Intel’s server processors are based on the x86 architecture which is the predominant platform in the global server market. Its x86 servers are primarily used as a platform for large scale data center buildouts. AMD is the only player that competes with Intel in the x86 server domain, but Intel has a substantial lead over the former in terms of market share based on server shipments.

With the ARM-technology based processors expected to enter the server market next year, will the competition for Intel heat up? While many believe that with Intel’s technology prowess and manufacturing leadership the company has nothing to worry about, there are others that feel that the increasing demand for low power processors and ARM’s leadership in developing the same will enable the company to take some of Intel’s server market share.

We believe that Intel will continue to account for a majority share in the server market for years to come. However, we think that as more ARM-based players enter the server market, the company could see a slight decline in its market share in the future.

See our complete analysis for Intel

What Are The Factors Driving Growth In The Sever Market?

Cloud computing, server virtualization, rapid rise in the number of connected devices and strong growth in the HPC market are key trends driving global server demand. We estimate global server shipments to increase from 9.6 million units in 2012 to over 15 million units by the end of our review period. Here are some figures supporting our view:

– With increasing worldwide Internet penetration, the global IP traffic has increased eightfold over the past five years and is estimated to grow at a CAGR of 29% from 2011 to 2016. Enterprise Internet traffic is expected to grow at an annual rate of 18%. ^[1]

– Research firm Forrester projects the global market for cloud computing to increase from $41 billion in 2011 to $241 billion by 2020. ^[2]

– The global high performance computing market is estimated to grow at a CAGR of 8.3%, reaching $44 billion by 2020. ^[3]

Intel’s x86 Platform Is The Dominant Architecture For Servers

Historically, strong demand for x86 servers have been the predominant factor fueling global server shipments. x86 servers account for over 80% of total server shipments and their revenue contribution increased from 53.6% in 2007 to 68.2% in 2012.

Sources: Gartner & IDC Press Releases

Dominating the high end and high value server segments, Intel accounts for more than 95% of the global x86 server shipments. The company continues to expand its server offering by refreshing its product line across all ranges of performance, performance per watt, and performance per watt per dollar. At IDF Beijing this year, Intel announced its next-generation Atom processor (Avoton) for the microserver segment of the market and its Ivy Bridge product for Xeon cloud servers. Both products will start shipping in the latter part of 2013 and will increase its leadership in the market.

Competition from ARM Can Reduce Intel’s Server Market Share

ARM-technology based servers will start shipping in 2014. ARM Holdings is working with TSMC to optimize its ARM v8 64-bit architecture, aiming to launch SoCs at 20nm and moving toward 15nm in the near future. The processors include TSMC’s finFET technology that are said to be higher performing and more energy-efficient than the current chips. The low-power chips will leverage 3D transistor technologies similar to Intel’s Tri-Gate architecture.

So far ARM’s designs only support 32-bit computing. However, with the introduction of ARM v8, the company’s designs not only get 64-bit compatibility but also have additional features that are important to data center environments. AMD is in the process of designing ARM technology based processors in addition to its x86 processors for multiple markets, starting with cloud and data center servers. The new generation server products will start production in 2014. HP and Dell have already built prototype servers with low-power ARM cores.

AMD believes that ARM CPUs have the potential to account for 20% of the server market by 2016 or 2017. ^[4] ARM CPUs are cheaper and ship in higher volumes as compared to more expensive x86 chips. Data centers around the world are supporting millions of users with servers running massive numbers of parallel workloads that need the type of small-core chips that ARM, along with its partners, is known for manufacturing.

Our $27.58 price estimate for Intel is at a premium of around 10% to the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Cisco Visual Networking Index: Forecast and Methodology, 2011-2016 [↩]
2. More Predictions on the Huge Growth of Cloud Computing, Wall Street Journal, April 21, 2011 [↩]
3. Worldwide High Performance Computing (HPC) Market Forecast 2015-2020, Market Research Media, February 22, 2013 [↩]
4. AMD reboots server technology strategy with first ARM chips, Tech World, June 18, 2012 [↩]